Why Wadia should let Go

Under the circumstances, letting go of the airline would be the best decision that Nusli Wadia, the group patriarch, can take.

Go First
To be fair, no one can accuse the Wadias of not trying to keep the airline afloat. (File image)

Its operations have remained suspended for a while now, but Go First’s flight path in the insolvency process has been absolutely smooth so far. The airline management has got what it had asked for—a moratorium on its financial obligations and recovery of aircraft by lessors—prompting its CEO Kaushik Khona to describe the decision as “historic.”

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But the euphoria can’t take away the fact that the Wadia group would be better off without Go First, which has largely remained on the fringes. Running an airline may be good for one’s ego, but is it good for the financial health of the group? The answer to that question would be a resounding no.

To be fair, no one can accuse the Wadias of not trying to keep the airline afloat. The promoters have pumped in Rs 6,500 crore into Go First since its inception in 2005. But the airline reported a net loss of Rs 1,800 crore in FY22, taking its accumulated losses to around Rs 4,500 crore. The airline reported a negative net worth of Rs 3,323 crore at the end of the financial year.

One can argue that the losses are nothing to be so worried about in a business that has seen its back broken by the pandemic. After all, Kingfisher, which came up around the time Go First (then Go Air) was born, has fallen by the side, while the Wadia airline has managed to hang on.

What is worrying, however, is that Go First has remained a relative slow starter on almost all the parameters. IndiGo, which took off a year after Go First, became a 100-plane airline in 2014. At the time, nine-year-old Go First’s fleet was not even a fifth of IndiGo’s. Even today, Go First has fewer than 60 planes while IndiGo’s fleet size has crossed 300. Go First’s former managing director Jeh Wadia had tried to make a virtue out of necessity by terming it a “deliberate strategy.” He had said the airline doesn’t want to expand recklessly at the cost of profitability. But even at the time he quit, the airline was neither profitable nor big in size.

Another reason for its bit-player status is lack of a proper strategy, possibly because of a huge churn at the corner office. As many as seven CEOs have been replaced since its inception. Jeh himself left in 2021 followed by a controversy. Not only that, he also claimed ownership of Go Air trademarks and domain names, which were registered with his own company, Go Holdings—a dispute that has now been resolved, with Wadias deciding to rename the airline as Go First. And all this just before its planned initial public offer that finally had to be aborted due to poor market conditions.

The airline’s repositioning as an ultra-low-cost carrier itself was fuzzy. To deliver on lower costs, such an airline will require extreme efficiency, examination of each cost with a fine toothcomb, and by consistently improving volumes. Go First could never achieve this. In any case, an airline can’t become an ultra-low-cost carrier simply by declaring itself one. As per its draft red herring prospectus, its cost per available seat per kilometre for FY2020 was Rs 4.66. The corresponding number for IndiGo and even SpiceJet was Rs 4.51 and Rs 3.89, respectively.

The short point is that money alone isn’t enough for running an airline. And the Wadias have clearly not inspired confidence in their ability to run one. Things would have perhaps been better if they had allowed a professional outsider to do the job just like they did at the group’s crown jewel Britannia, which remains as a reminder of the group’s storied past. The stability at the top with leaders such as Vinita Bali and then Varun Berry has led to Britannia’s stupendous success.

Nusli Wadia acquired Britannia via a hostile takeover in the early-1990s, in partnership with France’s Danone, with whom it subsequently parted ways. Outstanding leaders at the helm meant Britannia standing out from other group companies—from growth to governance, from optics to branding, from reputation to returns. Many say Britannia has been weighed down in the stock markets by the overbearing presence of the “group effect.”

The point is Wadias can’t keep bankrolling Go First as apart from Britannia. The performance of the other group companies has been deteriorating. For example, rating agency Care has raised concerns over group firm Bombay Dyeing’s ability to service its debt during fiscal years 2024 and 2025. The company has significant debt repayments worth `3,597 crore between FY24 and FY25, for which the rating agency has flagged concerns due to the delays in raising `940 crore through rights issues and asset monetisation. Once the flagship company of the group, Bombay Dyeing’s consolidated net loss in the quarter ending March 2023 widened to Rs 246.1 crore from a net loss of Rs 41.74 crore in the year-ago period.

Similarly, Bombay Burmah Trading, the group’s main holding company, is also in the red.

The financial underperformance has been compounded by recent run-ins with regulators. In October last year, the market regulator banned Nusli Wadia, his sons and Bombay Dyeing, among others, from the capital market on charges of misrepresenting financials of the company, though without incurring a monetary gain. That charge was later stayed by an appellate tribunal.

There is no doubt that the Wadias would be better off scaling down businesses that are sub-scale and concentrate on only those businesses where they can aspire to be among at least the top five in the country, For Go First, that chance is very slim. So, under the circumstances, letting go of the airline would be the best decision that Nusli Wadia, the group patriarch, can take. Questions of survival are not new to him as he has fought many battles in the past and came up trumps. But sometimes a tactical retreat can be a good option worth considering.

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First published on: 25-05-2023 at 04:00 IST